Second-class post

DON'T assume you are earning a top rate of interest just because you are in a postal account. Some pay less than 1% before tax. This compares with 3.5% to 4% before tax in the top-paying accounts.

When postal accounts were first launched by banks and building societies, they paid far higher rates than branch accounts.

But now you can earn more with a top account in the High Street than in the poorest postal accounts. If you are earning less than 3% you should switch, either to a more modern telephone or postal account or to a top-paying High Street account.

Some postal accounts do not even match the inflation rate of 1.9%. To match this rate, basic rate tax payers have to earn 2.37% before tax, while higher rate payers need 3.16%. Among the worst payers is Northern Rock Select Access, formerly known as Select Instant and an erstwhile top payer. It now pays just 0.2% before tax - worth just £20 before-tax interest a year on a £10,000 deposit. At £25,000, it pays only 0.35% before tax.

Bristol & West Postal Saver also pays its savers less than 1% before tax. Savers in Britannia Building Society Capital Trust account, once among the top payers, earn 1.5% before tax (worth 1.2% after 20% savings tax) on sums up to £10,000.

Savers would be better off sticking to the High Street, where Bradford & Bingley Premier Saver pays 3.3% before tax (worth 2.64% after 20% savings tax) on a minimum £2,000 and guarantees not to fall more than 1% below Bank of England base rate.

Smaller building societies with poorpaying postal accounts include Scarborough's-7 Day notice and Scarborough-30, its postal account where you have to give 30 days' warning that you want to take your money out.

A good rate of interest and easy access were her priorities in opening an account to put money aside for the birth of her first child in May this year. Louise, from Bournemouth, says: 'I opened the account to save towards the expenses of having a baby. The account pays a competitive rate of interest and gives me easy access to my savings. I like the fact that it is a telephone account so I can operate it from home.'

She earns 3.85% before tax, worth 3.08% after 20% savings tax. She is happy with the one restriction on the account - the minimum transaction is £100.